By

Effective Mortgage Company

A HECM (Home Equity Conversion Mortgage) is a special type of mortgage that enables homeowners age 62 or older to tap into the equity in their home. Unlike traditional home loans, no repayment of the HECM loan is required until they no longer occupy the home as their principal residence. At that time, the lender will declare the mortgage due and payable. What is borrowed plus interest is due to the lender, remaining equity remains with the estate.

Must be a minimum 62 years of age. Age of the

youngest borrower determines eligibility. ◦ Non-Borrowing Spouses under 62 are allowed beginning

8/4/2014

Max claim amount is the lesser of: ◦ FHA Mortgage Limit ($625,500) ◦ Appraised value ◦ Purchase price

Expected Rate = Fixed Rate / Adjustable Margin + 10 Year SWAP

Generally, the older the borrower is and the higher the value of the home, the more proceeds they qualify for.

Single Family Residence 1-4 units FHA approved condos New construction properties must have the Certificate

of Occupancy issued prior to application All repairs must be completed by the seller prior to

closing (purchase transactions) No properties that produce income (farms, ranches,

etc.) No manufactured, log, dome, extreme unique No co-ops

Must have considerable home equity or provide

monetary investment at closing from allowable funding source

Home must be primary residence Funding sources – no loan to get our loan Repairs must be satisfied by seller ◦ Anything health and safety

No credit score criteria BK – one day seasoning Mortgage lates allowed ◦ Major delinquency / NOD (3 years seasoning) ◦ Some exceptions

Will I still have an estate that I can leave to my heirs?

When the borrowers sell their home, their estate will repay the cash you received from the reverse mortgage plus interest and other fees, to the lender. The remaining equity in the home, if any, belongs to the borrower or to their heirs.

When does the loan become due and payable? A HECM loan must be repaid in full when the last remaining borrower permanently vacates the residence. The loan also becomes due and payable if: Borrowers did not pay property taxes or hazard insurance

or violate other obligations. Borrowers permanently move to a new principal residence. The last borrower fails to live in the home for 12 months

in a row. ◦ An example of this situation would be if they (or the last

borrower) were to have a 12 month or longer stay in a nursing home.

The borrowers allow the property to deteriorate and do not make necessary repairs.

How long does the Estate have to pay-off the bank?

Note indicates it is due immediately, however, industry standard is six months, with 2-3 month extensions as needed.

Adjustable Rate

Mortgage HECM

Fixed Rate

HECM

Index is the one month LIBOR. Typically allows borrower to

receive the most funds. Borrower has more flexible

options to accessing available funds.

Funds can be accessed at close of escrow, monthly disbursement schedule (term payment), monthly payment for life (tenure payment), or credit line as needed. These options are flexible and can be combined and changed at a later date.

Money left on the credit line does not incur interest until it is drawn upon.

Money on credit line grows at the rate of the credit line growth rate. The unused credit line grows!

Ideal program for sustaining long term cash liquidity.

Ideal program for protecting the equity position in the home for the estate. Typically used to allow borrowers the option of accessing funds at a later date.

Rate is fixed.

Borrowers are “satisfied” with receiving funds at closing, with no option of accessing additional funds at a later date.

Often times the closing costs are less.

Many times this is best suited for Purchase HECM’s and instances where most available funds are allocated towards existing lien pay-off.

No monthly mortgage payment is ever required Credit line growth rate Unused available funds grow at the same rate as

the interest being charged Guaranteed regardless of equity position Borrowers should look at home equity as asset

allocation No pre-pay penalty – make payments if you want

(I/O) Funds are tax free Homeowners keep all future appreciation, no

equity sharing Borrowers retain Title to the home

No limitations to how the borrower may use the funds

Accessibility – qualifying is typically easier than a traditional mortgage

Allows seniors 62 or older to buy a home with HECM proceeds

Purchasing power – lower upfront investment than a cash purchase

Buy up – buy more house than thought you could afford

Retain vital cash liquidity for future retirement needs

Reverse Mortgages are Non Recourse Loans Non Borrowing Spouse (< 62) is now protected! All FHA HECM’s are insure through the Federal

Housing Administration (FHA) Borrowers have no limit as to how long they can

stay in the home Education – counseling is required Created by the Housing & Economic Recovery Act

of 2008 Safeguards – Mortgage Insurance Premium (MIP)

ensures the amount owed on the loan can never be more than the value of the home at the time of sale

For any questions please don’t hesitate to contact our office. Leila Vaziri- Loan Originator leila@effective-mortgage.com 818-773-0033 Bijan R. Vaziri bijan1@effective-mortgage.com 818-773-0033